China Medical System (0867.HK): the Leader in Commercialization Embraces Great Industry Opportunities as Biotech Companies are Eager to Monetize Their Innovative Products

HONG KONG,April 14,2022 --Recently,China Medical System ("CMS",0867.HK) announced its annual results. After recording continuous performance growth in the difficult time of the pandemic in 2020,it once again achieved a new record high,with revenue of RMB 8,337 million,up 20.0% year-on-year,and net profit of RMB 3,025 million,up 18.4% year-on-year.

In addition to the expressive financial data,CMS has repositioned itself as an "open innovative drug incubation platform linking pharmaceutical innovation and commercialization" to empower the rapid development of global innovative drugs in China. Its industrial investment in innovative biotech companies,which is highlighted in its annual report,should not be overlooked.

1. The booming demands in commercializing innovative drugs have bred great opportunities for CMS

As mentioned in the CMS Annual Report,in recent years,China's biotech R&D technologies have made continuous breakthroughs,and innovative products at R&D stages have entered the commercialization stage one after another. Commercialization of innovative drugs might become a next big thing.

In recent years,with the accelerated review of new drug applications,the innovative drug development in China has been speeded up and is gradually transitioning to a period of harvest. The capital market also reflects this trend. On August 4,2020,the Securities Times officially released the "People's Finance - Innovative Drug Index". At the beginning of December 2021,the index had 1,146 constituents,an increase of 624 constituents compared to the base date of July 1,2020. According to clinicaltrial.gov,the number of new clinical trials in China has grown from 9 in 2004 to 3,278 in 2021. The number of biotech companies (both public and private) in China has reached 865 in 2020,accounting for 14% of the global total,which is expected to increase to 25%-30% in the next 5 years.

The dramatic increase in clinical trials and the spurt of biotech companies have bred a huge market space for innovative drugs commercialization.

The strength of domestic biotech companies continues to grow and has even surpassed Europe and the United States regarding some cutting-edge targets. With the approval of biotech's core products one after another,it has become urgent problems for these innovative biotech to promote the rapid launch and commercialization of products and meet the expectations of their investors. These needs will continue to be highlighted,especially when a large number of these biotech companies go public.

In fact,against the backdrop of this spurt in monetization needs,biotech companies have been seeking for new survival path. Some of the biotech companies have further developed into biopharma companies,but the establishment of a commercialization system is not easy. Some high-profile biotech companies,suffering from high operating expenses in the process of commercialization and transformation,made even greater loss under higher income. More biotech companies are turning to active alliances with trusted pharmaceutical companies,especially big pharmaceutical companies in China,to open up new paths for commercialization of innovative drugs in China.

So what benefits can cooperation bring to both sides? In fact,most of biotech companies often focus on a single area of pharmaceutical innovation,but lack of comprehensive strength,especially in aspects such as clinical execution and commercialization. Through the cooperation,biotech companies can promote the commercialization of their innovative drugs more smoothly by leveraging big pharmaceutical companies' mature experience,scaled operation,and full industry chain capabilities in R&D,manufacturing and sales. At the same time,supported by the existing profitable business lines and strong capital strength of large pharmaceutical companies,biotech companies can continue to step forward with stronger anti-risk capabilities in innovation. The alliance between biotech companies and big pharmaceutical companies will clearly achieve a "1+1>2" effect,maximizing the commercial and social benefits.

It is foreseeable that the demand for cooperation between biotech companies and big pharmaceutical companies will be further released in the future under the increasing commercialization needs. As a pharmaceutical company with significant advantages in commercialization and other industry chain links,CMS is bound to usher in huge market opportunities with the accelerated integration of industry resources and release of market demand.

2. Following the trend,CMS is aimed at accelerating innovation incubation through models of industrial investment and customized development

The future has come,just follow the trend. At this time,CMS,in addition to its continued investment in overseas innovative technologies,started industrial investment in China's biotech companies.

CMS' investment in Trinomab in 2021 is its first deal made in the business model of industrial investment in domestic biotech companies. Trinomab has a new generation and world-class core patented technology platform -- HitmAb® that has attracted much attention in the industry. HitmAb® is a comprehensive technology platform for the research and development of natural fully human monoclonal antibodies. CMS,which is interested in this core platform,has entered this innovative field through equity investment and establishing the joint venture. At the same time,CMS used its own advantageous resources and strong clinical promotion and commercialization capabilities to actively accelerate the clinical development,registration and commercialization of innovative products to achieve complementary advantages and mutual benefits. Currently,CMS has entered into collaboration with Trinomab on four innovative products under the HitmAb® platform,including the fully human anti-SA Hlα antibody,fully human anti-HCMV antibody,fully human anti-COVID-19 antibody and fully human anti-rabies virus antibody,and the two companies are expected to negotiate further collaboration on more products.

In 2021,CMS began to entrust CROs for customized drug development with a focus on novel or popular targets in its own areas of strength. Being the closest to the market,is also bound to know the market best. CMS' business model determines that it can easily and fully obtain the first-hand market and clinical information and make fully informed decisions. Based upon its understanding of the clinical needs,CMS entrusts CROs to provide preclinical research services,and independently controls the selection and determination of innovative drug targets,development paths and strategy formulation,etc.,to take initiatives to incubate innovative products that can effectively meet clinical needs in its own areas of strength. At the same time,with its strong clinical execution and commercialization capabilities,CMS can effectively promote the clinical development and registration of innovative products. In this way,CMS has clearly demonstrated its independent and efficient development path of innovative products,from the scratch.

CMS' clinical execution and commercialization capabilities are the cornerstone of its industrial investment model.

CMS has the hard-wired capabilities for rapid subject enrollment and efficient clinical advancement,with not only a strong medical team to drive clinical execution,but also dedicated marketing staff of approximately 4,000 and a wide range of hospital and principal investigator resources. Last year,CMS completed the enrollment of all the 220 subjects in the bridging trial of Tildrakizumab Solution for Injection in China in 2.5 months (including the Chinese Spring Festival) and the enrollment of all the 384 subjects in the bridging trial of Cyclosporine Eye Drops 0.09% in China in around 4 months (including the Chinese Spring Festival),which is rare in the industry for such a high efficiency. At the same time,the registration of the company's core innovative drugs has progressed rapidly. Three innovative drugs' marketing application were accepted in China last year and are expected to be approved this year,including: Diazepam Nasal Spray (indicated for recurrent epileptic seizures),Tildrakizumab Solution for Injection (indicated for moderate to severe plaque psoriasis),Methotrexate Injection,Pre-filled Syringe (indicated for psoriasis); according to the incidence population,market conditions and other projections,annual sales volume for either Diazepam Nasal Spray or Tildrakizumab Solution for Injection is expected to be in the billions of RMB,providing both of these products with great market prospects. The marketing application of Methotrexate Injection,Pre-filled Syringe (indicated for psoriasis) was granted priority review designation on the grounds of "drugs urgently needed in clinical settings",which shows that it is also a product with great clinical needs.

In addition,Cyclosporine Eye Drops 0.09% (indicated for dry eye),Desidustat Tablets (indicated for anemia due to chronic kidney disease),Methylthioninium Chloride Enteric-coated Sustained-release Tablets (enhancing colonoscopy visualization) and Methotrexate Injection,Pre-filled Syringe (indicated for RA) are also undergoing bridging trials in China and are expected to be launched in China around 2023-2024,with annual sales potential of each product at the scale of one billion to several billion of RMB each.

Another core value of CMS in the industrial chain lies in its commercialization platform,which is like a highway for promotion and sales of innovative drugs and will boost monetization of more new products in the future. As one of the leading commercialization companies in China,CMS has nearly 30 years of successful experience in commercialization of drugs,covering about 50,000 hospitals and medical institutions and over 200,000 drugstores nationwide,and has about 4,000 professional academic promotion staff,having created good brand images and leading market positions for its core marketed products. For example,Deanxit and Ursofalk have maintained the No.1 market shares of antidepressant drugs and cholagogues respectively in China for many years; and Salofalk has maintained the No.1 market share of aminosalicylic acid,a first-line treatment for inflammatory bowel disease,in China. In addition,the company also attaches great importance to the comprehensive upgrade of the business system and compliance control,continuously extends the layout of retail drugstores,actively embraces digital transformation,strengthens investment in e-commerce and in-depth cooperation,and explores new development forms such as new retail,further enhancing its comprehensive competitiveness in commercialization.

CMS has built an efficient,flexible,compliant,and open platform for clinical development and commercialization of drugs,which can continuously drive innovation to the market. And here we have to mention the driving power,that is,CMS' product selection ability and financial strength,and it is these two strengths that further give sustainability to its industrial investment model.

CMS' nearly 30 years of industry accumulation and international development experience have shaped its strong product selection capabilities. The company has a mature BD team and has formed a complete systematic product selection mechanism,and its natural business line genes enable it to have a keen insight into the market and the strength to explore products with great potentials. In just four years,the company has successfully deployed nearly 30 innovative products,which fully reflects the company's efficient product acquisition ability.

CMS follows a differentiated product selection route,which effectively avoids homogeneous competition and industry involution,such as Diazepam Nasal Spray,a safe and effective first aid drug for epilepsy that can be used anytime and anywhere over the age of 6. It can help avoid problems such as brain damage caused by untimely epilepsy treatment,and could be a common home medication for many parents,children and adults with recurrent seizures. Tildrakizumab Solution for Injection is positioned as the most cost-effective novel monoclonal antibody targeting IL-23 that is safe and effective,with less injection frequency. It is reported that the annual treatment cost of IL-23-targeted drugs on the market generally ranges from more than RMB 100,000 to hundreds of thousands of RMB,which is really expensive. In the future,CMS' product will benefit more Chinese patients and families with its cost-effective pricing strategy. Methotrexate Injection,Pre-filled Syringe precisely taps into a neglected market need to meet physician and patient demand for a safer MTX formulation for psoriasis and rheumatoid arthritis treatment,providing patients with an affordable option for basic medication.

After talking about the selection of products,let's take a look at the financial strength of CMS. After all,industrial investment requires money. The 2021 Annual Report shows that the sales of CMS' marketed products have grown steadily,bank balances and cash amount to RMB 3,386 million,readily realizable bank acceptances amount to RMB 453 million,and the gearing ratio is only 10.6%. The good cash flow and ample capital have laid a solid foundation for CMS' investment in innovation. As the monetization of innovative drugs in the future will further nurture the subsequent innovation investments,the industrial investment model of CMS will be like a flywheel,moving forward in a continuous,positive,acceleratedcircularmanner,absorbing more high-quality innovation resources and realizing huge commercial value.

In summary,based on clinical execution and commercialization capabilities,product selection and financial strength,CMS further draws a strategic blueprint with local industrial investment and customization of innovative products models,while continuing to invest in overseas innovative products,which has formed a clear,replicable,sustainable,and open-ended innovation development path.

3. Conclusion

On the whole,with the vigorous development of innovative drugs,CMS is facing good market opportunities in the commercialization era of innovative drugs. As a leader in drug commercialization,the company is expected to benefit from the dividends of the industry blowout. With a clear self-positioning and open attitude,the company has laid a solid foundation for its own development and formed a three-dimensional development platform for innovative technologies and products,to continuously provide Chinese patients with affordable,quality innovative products that meet clinical needs.

Contact:

Tel: +86 755 8241 6868

Email:ir@cms.net.cn

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